REAL ESTATE INVESTING: WHAT SHOULD I EXPECT?

Real estate investing is one of the most widely used ancillary income strategies for both passive and active income. This also proves as a sector that provides real time employment for many. Starting your real estate career heavily relies on how effective your organizational skills are and how well you can mitigate any risks that come along the way. The biggest challenge, especially for first time investors, is thinking over what to expect when they step inside the business. Here are a few things that you would have to keep in mind before you start investing.

THE MARKET DOESN’T ALWAYS WORK IN YOUR FAVOR

If you hope to build wealth in real estate, you have to know the market – and you have to know it thoroughly. Keeping up with current trends such as consumer spending habits, mortgage rates, unemployment rates, the state of our economy and your MSA (metropolitan standard analysis), and market supply/demand to name a few are what enables an investor to plan effectively for the future. Here are a few things you need to know to get started:

Comparables

A good deal on a property is known by the comparable values or comps in your area. You can start with checking out the listing prices with local investors for an area that you’re interested in. Whether or not it’s a seller or buyer’s market, there’s a wide variation between asking prices and closing prices. Your best bet would be looking into the latter so you have a firm idea on your limits when it comes to how much money should be spent on a property. Don’t be shy to place an offer on a property. It’s up to your due diligence and investment strategies that you plan to use, not the opinion of a realtor/broker or a sentimental opinion of an owner

Rent prices

Research the market value of the property that you plan to acquire as a rental property. The same concept applies, check out how much rents are going for in your locale. Reach out to landlords, tenants, appraisers, and even property managers to have a clear idea on the market at that specific point in time. Don’t go with the highest rent comp, be conservative when doing your due diligence and be pleasantly surprised with getting a higher rent rate. 

Don’t overspend

If you plan on turning it into your investment property, you should tread lightly. Spending too much will lead you to price much higher in order to compensate your loss. The property will probably have longer days in the market and in the worst case scenario, you can lose time and money. This is a critical point that you need to consider if you’re into flipping for profit, as well as using realistic market companies and listing at the right time of the year.

YOU HAVE TO BE WELL-VERSED WITH REAL ESTATE LEGALITIES

There is a plethora of laws and regulations that you need to abide by in real estate investing, especially when it comes to running a rental property. Your options are mostly constrained by state and local law so be prepared! Here are some that you can expect:

Insurance coverages

A homeowner’s insurance coverage is quite different compared to owner-occupant coverage. If you plan on running a rental property, you have to insure against the possibility of injury to your tenants and damage caused by them. A liability insurance coverage is ideal in such cases when a tenant (or one of their guests) is injured on your property and decides to file a lawsuit against you.

Building codes and ordinances

These are a set of laws enacted by state, county, city, or local governments that require structures to follow a specific standard. For example, some codes determine how much square footage a property is limited to. The same applies for electrical and plumbing systems. It’s quite common in Michigan to follow these codes especially when it comes to the inspection. Not complying with these codes will bring you a rainbow full of headaches so make sure to follow them to the T.

Tenant rights

Difficult tenants may result in eviction which could lead to expenses. There are state laws that require you to give a certain amount of time (30 days or less) to give notice of an eviction. Also, there are limitations to what the tenant’s security deposit is used for. A security deposit is usually equal to a 1? month’s rent and is mostly used for damages in the rental property or to cover for unpaid rent. A tenant’s privacy is also of utmost importance. Tenants should be notified of your visit to the rental unit.

IT CAN BE HARD TO BUDGET YOUR CASH

To earn a profit, you should have accurate records of all the cash movement involved. A common misconception about starting a real estate business is that you need a large capital to begin, there are ways to start with little to no cash at all! Here are some useful tips you can use to effectively build wealth in your investments:

Aim below market value

One of the best things in real estate investing is that you can turn any run down property into a homey feeling property resulting in a good source of income. Every now and then you come across a property that’s way below the market price and turn it around for a substantial profit. There are numerous ways that you can do this such as a fix and flip or buy and hold. 

Buy properties for the purpose of income

Easier said than done. However, this can be achieved by purchasing a property with the intent to rent it out to prospective tenants. The rent you receive can eventually be used to cover the mortgage and other property taxes. If done right, you can move on to buying another property to invest in adding more potential in terms of profits.

RISKS ARE ALWAYS INVOLVED

Whatever you try to invest in, the presence of risks are involved. With that said, the financial upside of real estate is limitless. Risk management follows a very intricate process where you start with identifying, analyzing, evaluating, treating, and monitoring the risks so you can prepare accordingly to allow your real estate business ensured continuity and evolve into an income powerhouse. 

Key to success in investing is proper understanding and education with qualified mentors. Reach out to our team at Unique Wealth Education. You can do so by contacting (734) 224-5454 or email us at [email protected]. We invite you to drop by our office at 27475 Schoolcraft Road, Livonia, MI 48150 every first Thursday of each month at 6PM to learn from fellow investors ranging from rookies to the best in the industry to share knowledge and build a vast network of like-minded individuals. Contractors, realtors, investors, and many more come to our events!